Harnessing investment in manufacturing to improve GDP
Countries all over the world have been negatively impacted by the effects of the COVID-19 pandemic and are looking at ways to aid recovery. Increasingly, governments are emphasising the need – and providing incentives and support – for businesses to invest in manufacturing infrastructure, including smart systems and Industry 4.0, in order to drive innovation, promote growth, and improve GDP.
There are myriad benefits for organisations who choose to embrace new Industry 4.0 technology to upgrade their manufacturing systems – from mitigating supply chain risk, to achieving greater production line agility, efficiency, and resilience. However, understanding what new systems businesses might be best to invest in, and where these can be applied on the production line for maximum benefit is key. Choosing the right supplier who can support and advise during this process is crucial as Carl Haycock, UK Operations Director, and Adem Kulauzovic, Director of Automation, Domino Printing Sciences (Domino), explain.
Manufacturing decline
Prior to the COVID-19 pandemic, the manufacturing industry was working to regain the momentum it had reached before the 2008 global recession. However, sectoral and geographical recoveries for manufacturers have been uneven and have been further impacted by recent global shutdowns.
Reeling from the effects of the coronavirus-driven shutdown, US industrial production (-16.5% year over year) and US total factory orders (-22.7% year over year), for example, saw a steep decline in April 2020, followed by suppressed improvement. Similarly, in June 2021, UK GDP remained 2.2% below its February 2020 level – the most recent month not significantly affected by the pandemic. In the same month, UK manufacturing output remained 2.3% below its February 2020 level[i].
The last two years have also seen a significant dip in manufacturing employment levels, largely due to the forced shutdowns in the early days of the pandemic and suppressed orders, with April of last year recording US manufacturing’s lowest employment levels since 2010. All of these indicators have created an environment of ongoing uncertainty, something that governments globally are now seeking to redress through a range of economic incentives for technological investment to improve GDP, as outlined below.
[i] https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandtheimpactonoutputintheukeconomy/june2021
Government incentives
UK – Super Deduction Incentive
From 1 April 2021 until 31 March 2023, British companies investing in qualifying new plant and machinery assets will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets
The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.
The UK government has offered unprecedented support for businesses during COVID-19. Even so, pandemic-related economic shocks and the accompanying uncertainty have slowed business investment. This super-deduction will encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow.
China – Ministry of Finance and State Administration of Taxation: Notice on the deduction of equipment and appliances related to corporate income tax policies
The Chinese government’s incentive encourages businesses to invest in machines and tools. The policy allows for any machinery or tool investment below CNY 5 million to be claimed as tax deductible at the year of investment. In December 2020, the policy was extended until 31st December 2023.
Korea – Smart Factory Initiative
The Government of Korea is offering financial support for small- and medium-sized enterprises investing in smart factory solutions, in order to help drive growth. Under the terms, a project run by the Smart Manufacturing Innovation Promotion Team may be supported for investments in smart solutions for up to 400,000,000 South Korean Won. New projects will be able to register from February 2022.
Thailand – Corporate Income Tax Reduction
Thailand is shooting to become the leading country in automation technology by 2026. The government is investing 116 billion Baht for automation and the Board of Investment is offering 50% corporate income tax reduction lasting three years to promote investment in technology upgrades and production efficiency improvement.
Ireland – Research & Development Investment
In Ireland, the government is allocating €900 million to incentivise research and development (R&D) activities improving automation and intelligence within manufacturing processes.
US – The American Jobs Plan & Tax Credits
The US government has made a specific commitment to ‘Revitalize manufacturing, secure U.S. supply chains, invest in R&D, and train Americans for the jobs of the future’. The plan highlights a commitment to retool and revitalise American manufacturers and small businesses.
President Biden is calling on Congress to invest $300 billion in multiple different initiatives, including increased access to capital for domestic manufacturers, and support for modernising supply chains. There are also calls for the creation of a new financing programme to support debt and equity investments for manufacturing to strengthen the resilience of America’s supply chains.
Alongside this, a new US Tax Credit has been placed to help push investments in software and automation while allowing them to still be competitive. The Section 179 deduction allows companies to write off the full purchase price of equipment or software in the tax year that it was purchased, as well as offering an R&D Tax Credit which allows 6–8% of R&D expense to be applied against the federal income tax liability (to reward businesses that pursue innovation).
Where to invest?
The question for many businesses seeking to take advantage of these incentives is where to invest. What aspects of production will benefit most from investment in new technologies, systems, and processes, for both immediate and long-term advantage?
The pandemic has served to emphasise the benefits of technology in helping manufacturers and brands to cope with fluctuations in demand and supply chain disruptions, enable social distancing and remote working, and operate effectively with a significantly reduced workforce.
The majority of businesses now recognise the strong correlation between digital tools and increased productivity, efficiency, and resilience – but it is easy to get blown away by the many features Industry 4.0 has to offer. Many companies get distracted by investing in technology for technologies sake rather than identifying the strategy it will help fulfil.
Are you driving technology or being driven by it? Real success comes from using technology that transforms the businesses, not adopting technology just because it exists. This is the approach Domino has taken in its award winning factory in Cambridge where an Industry 4.0 approach has improved right first time quality whilst reducing lead time, which are two of Domino’s key customer requirements.
Supplier support
Every manufacturer is different, however, we have identified four key areas which we see as ripe for enhancement through digital investment. In these areas organisations can look to utilise Industry 4.0 for both immediate and long-term effect – without necessitating significant changes to production processes:
- Manual data entry: limiting manual data entry reduces the risk of operator error – one of the top causes of labelling mistakes – which, if unnoticed, can cause costly product recalls. Simple automated solutions can replace the need for manual data entry on production lines – for example, a barcode scanner can be utilised to populate product labels automatically based on an existing production order.
- Inefficient product changeovers: the time taken to carry out a changeover can be reduced by ensuring that production workers are prepared ahead of time. This requires little more than a monitoring solution set up to provide a real-time product count, with a corresponding alert to let production staff know when a production run is coming to an end.
- Machines working in siloes: integrating line machinery with automation software can provide greater visibility of how a production line is operating – helping manufacturers to identify where problems are arising and understand what improvements need to be made to correct causes of downtime. In addition, by allowing machinery and systems to work together, manufacturers can significantly improve their production capabilities. For example, integrating machinery with an existing ERP or MES system via coding automation software can offer opportunities to automate product changeovers and production schedules.
- Manual data sharing: cloud communications enable instant, real-time sharing of production data to anyone, anywhere in the world. Production lines equipped with smart systems to collect production data can utilise the cloud communication to share information with supervisors, plant managers, and service and support engineers, without necessitating a site visit.
These areas can be explored together as part of a larger efficiency project, or individually, for companies looking to see tangible benefits in one area before making a larger commitment. Crucially, though, each represents a simple step to embrace new technology, without necessitating full automation of all aspects of production.
The key thing with an investment in Industry 4.0 is to start small, by addressing the small issues that all add up to a big impact and can pave the way for more creative solutions in the future. Partnering with a global supplier can help individual manufacturers identify which of these different areas for investment are applicable for incentive support and appropriate for both immediate, local innovation, and long-term, global growth initiatives.
Having the support of a trusted, reliable partner with experience of the full suite of Industry 4.0 technologies, their relevant stages of application, and how these apply to individual sectors and geographies is key to helping the industry maximise its investment and help reinvigorate the global manufacturing economy.
[i] https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandtheimpactonoutputintheukeconomy/june2021